 A note on optimal capital stock and financing constraintsEnrico Saltari and Giuseppe Travaglini Economic Modelling, 2012, vol. 29, issue 4, 1177-1180 Abstract: There is a robust literature on the relationship between financing constraints and real investment. Little has been said on the relationship between financing constraints and capital stock in the long run. This note focuses on this last issue. To keep the model tractable, we assume that the firm employs a single input, and this input is used as collateral. We get three main results. Firstly, we show that the optimal capital stock chosen by a firm is affected by financing constraints even when they are slack at the current time. Secondly, we show that the net present value of the potentially constrained firm is always smaller than the one of the never constrained firm. Finally, we find that in the presence of latent financing constraints the firm does not limit itself to reducing its investment when the upper limit is reached. What it actually does is to lower its long run optimal capital stock, amplifying the effects of constraints in the long run. Keywords: Capital stock; Financing constraints; Brownian motion; Uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:29:y:2012:i:4:p:1177-1180 DOI: 10.1016/j.econmod.2012.04.006 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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